School Finance Basics

ISFIS strives to help school leaders and others understand the Iowa School Finance Formula.  More details are available for ISFIS Finance Subscribers under the Finance Subscriber tab, but below is general information on key terms and concepts we hope will benefit anyone interested in learning more about how public schools in Iowa are funded.


Introduction to Iowa School Finance Video

This 20-minute video by Larry Sigel of ISFIS is designed to provide a general overview of the Iowa school finance formula and various school finance issues affecting public school districts. This Iowa School Finance Basics Video and the Accompanying PowerPoint Slides can be shared with school board candidates, legislators, district staff, posted on a school district website, or circulated to others interested in Iowa public school finance issues. This video is intended to be an overview and a basic introduction. A more detailed video and additional resources can be found on the ISFIS Subscriber website (login required). For questions on Iowa school finance issues, contact us(Updated 2023)


Key Measures of Financial Health

Below are a number of key terms, definitions and measures of a school district’s financial health.  Or, view this printable version of the Key Measures of Financial Health below. (Updated 2022)

Unspent Budget Authority

Unspent Budget Authority, also known as “Unspent Balance” is the amount of unused district General Fund capacity to spend on behalf of students, or spending authority, left over at the end of the fiscal year. This funding capacity carries forward into the next fiscal year. It is one-time capacity and may be funded with cash reserve fund balances or a cash reserve levy. The Unspent Budget Authority trend line is the most telling financial indicator school district leaders count on to inform expenditure decisions. Districts whose Unspent Budget Authority is negative are subject to workout plans and enhanced state scrutiny at a minimum; at a maximum, it can result in the closure of the district by the state board of education. The concept of Unspent Budget Authority only applies to the General Fund.

Since spending authority is generated on a per pupil basis as set by the legislature, the only way for school districts to gain additional Unspent Budget Authority is to reduce General Fund expenditures relative to General Fund authority. School districts have little ability to increase spending authority since the legislature determines the per pupil increase in spending authority, known as state supplemental assistance. Beyond that, a school district may impose an Instructional Support Levy (most have already done that), pursue every avenue of claiming additional Modified Supplemental amount (spending authority) for on-time funding for enrollment growth, Budget Guarantee for enrollment decline, Dropout Prevention, English-Learner Authority, or an additional Modified Supplemental amount for unique and unusual circumstances. Grants or federal funding, considered as Miscellaneous Income, also create dollar-for-dollar Spending Authority when the funds are actually received. School boards can set goals or parameters around Unspent Budget Authority targets to clarify their level of comfort with a specific range of Unspent Budget Authority. 

Word of caution: Special education expenditures which exceed revenues generated by special education weighting create spending authority as dollars are spent due to the granting of spending authority by the SBRC. Similarly, reducing special education expenditures below the revenues generated by the weighting does not increase spending authority for the district. Cuts to special education staff and expenditures do not “free up” spending authority or save General Fund spending authority for other purposes. A school district’s unspent budget authority is not impacted by special education expenditures, but its solvency ratio is impacted as excess expenditures are not funded by the state Additionally, there are certain funding sources which be carried forward from one year to the next and those where a district is penalized for doing so (eg, dropout prevention). Maximizing resources for students requires knowing and prioritizing different requirements, even within the General Fund.

Solvency Ratio

Solvency Ratio is a calculation used to assess financial health. The calculation measures the relationship of ending uncommitted fund balance to revenues as a percentage for the fiscal year:

Unassigned General Fund Balance PLUS Assigned General Fund Balance
Total General Fund Revenues LESS AEA Flow-Through

The Solvency Ratio is a snapshot point-in-time measure of the percentage of revenue remaining, assuming the district closed its doors on June 30 of the fiscal year, after gathering all the year’s revenues and paying all the year’s obligations. A district can only impact its solvency ratio by either increasing revenues or by reducing expenditures (or a combination of both). A district may choose to generate additional revenues through the use of the Cash Reserve Levy if they have not reached the statutory limit of 20% cash reserve relative to two prior years’ General Fund expenditures. 

Although a recommended range of solvency ratios has typically been somewhere between 5 and 15 percent (with the lower range considered “good” and the higher range considered “excellent”), school boards should consider local reasons and comfort levels based on acceptable levels of risk that could justify a deviation from the recommended range. 

Districts with a history of comparatively high solvency ratios should consider whether local experiences compel a continued higher solvency ratio trend and if so, at what expense? Districts must consider competing issues. Do we need to spend more on learning opportunities for students? Do we need to lower the level of taxation for district residents? In other words, is our high solvency ratio indicative of inadequate educational opportunities, taxation that is too high, or are we satisfied with the current positions in all of these areas?

An important caution: solvency ratio only relates to the relative fund balance of a district, so is not indicative of the spending authority position of the district. Many districts have experienced a negative solvency ratio for a number of years without any sanction from the Iowa Department of Education or State Board of Education.

Enrollment Trends

The Iowa school foundation formula is driven by student enrollment. Both increasing and decreasing enrollment will impact a school district’s spending authority and need for expenditures. District leaders should consider short-term and long-term enrollment trends and contemplate scenarios for adjusting staffing and expenditures along the way. Trends in open enrollment (both in and out of the district) also directly impact the district’s revenues and expenditures and should be carefully analyzed and trended forward to anticipate the financial impact. In many cases of districts encountering financial hardship, local leaders have looked back to discover that staff reductions were not made along the way as enrollment declines continued over a number of years.

Number of Staff/Staffing Ratios

The largest expenditure of a school district’s General Fund is salary and benefits costs for staff. District leaders should anticipate a staffing ratio that results in personnel costs around 75to 85 percent of the average district’s budget. Even small increases in salary or benefits costs combined with declining enrollment will compound very quickly if staffing ratios are not maintained and staff costs creep up to over 80 percent. Districts should evaluate the trend in salary and benefit costs for the General Fund annually.

Building Level Staff/Staffing Ratios

One way to detect expected staffing cost increases in advance is to carefully consider staff cost trends at the building level. Typically, elementary school staff costs are slightly less per pupil than the average cost per pupil, and at the high school staffing costs are typically slightly higher per pupil. Deviations to this pattern can help to point out differences, perhaps in the seniority or degree status of staff in a particular building. Understanding building-level staffing costs and anticipating sensible staffing ratios can inform district leaders and help in long-term planning, to maintain a healthy overall staffing ratio with less disruption than staff reductions made after the district is experiencing economic hardship. It may also help inform districts whether an early retirement plan may be utilized to reduce such expenditures or if natural attrition will deliver the expected staff ratio relative to the number of students anticipated to be enrolled.

New Money / New Spending Authority

School districts will typically learn how much new spending authority they will receive for the next fiscal year based on the October 1 enrollment headcount when the legislature sets the state cost per pupil percent of growth for the next school year (known as State Supplementary Aid or SSA). The Iowa Code requires the legislature to set the SSA rate within 30 days of the release of the Governor’s budget recommendation (typically completed by mid-February). This report has been historically referred to as the “New Money” report, although it isn’t money (cash or revenue), but instead is a measure of change in spending authority. ISFIS has titled this report the “New Authority Report,” and it can be found on the ISFIS Subscriber Website at With the 101% budget adjustment in place, districts with declining enrollment must look one year beyond this notice of new spending authority in order to realize the impact of an enrollment decline. Historical looks at new spending authority and carrying forward trend lines for long-term planning can go a long way towards helping school leaders plan for revenue and expenditure changes down the road. 

Four Key School Finance Ideas for Iowa School Leaders to Keep in Mind

  1. Iowa school finance is based on the number of students in the district. The total amount of money a district has is determined primarily by the number of children enrolled. Except for a few specific tax levies dedicated to specific purposes, the state prohibits districts from levying as much local money as they might otherwise want to fund the school district.
  2. The district’s tax rate is primarily set by the school foundation formula. There are only limited steps a school board can take to increase or decrease the property tax rate. 
  3. Certain funds have to be spent on certain things. Each tax levy has a limited purpose and the General Fund is for everything else. Although it may not make sense that the district has enough money to pave a parking lot or buy computers but not enough money to hire teachers (or vice versa), that’s how the state law works. 
  4. Schools are a labor-intensive business, with about 80 percent of a district’s General Fund made up of staff salary and benefit costs.


Graphic Diagram of School Finance

Pictured below, find the ISFIS School Finance Graphical Diagram, which visually displays the funding sources and allowable expenditures under each school district fund. This diagram is perfect for sharing with new board members or those running for public office.


Poverty - Free and Reduced Percentages by School District FY 2001 - FY 2023

View this PPT on poverty in Iowa, with maps showing the free and reduced-price percentages by school district for each year from FY 2001 through FY 2023 from the ISFIS Interactive Mapping Tool.


More School Finance Videos, Presentations, and Related Topics

  • "What Urban Leaders need to know about Iowa School Finance" - This ISFIS Webinar was recorded in December 2019 and designed especially for urban school district leaders. View the Dec 2019 Webinar Recording or download the Accompanying PowerPoint.
  • Financing Public Education in Iowa, 2017 This document provides detailed explanations by the Department of Education on Iowa school funding history dated 2017, however, it predates local control expansions adopted by the Iowa legislature in 2017 and more recent legislative sessions.



ISFIS is here to answer more in-depth questions on related school finance questions, contact us with questions on topics such as:

  • Iowa’s Property Tax System

  • Funding Special Education

  • Spending Authority

  • Data and Trends

  • And more